Friday's Finalists

Of the six symbols under consideration today, three failed confirmation by moving back within their 20-day price channels: TVPT, FANG and DISCA. The remaining three have options grids that are too illiquid for use in building hedged and leveraged positions.

See "Friday's Prospects" for a description of the early rounds of analysis.

Bottom line: No new positions today based on Thursday's markets. Also, there were no prospects for volatility plays timed to coincide with earnings, and no symbols from my list of innovative companies that gave trading signals.

I'll spend the day working on my project to expand my very short term volatility strategy to situations other than earnings announcements.

-- Tim Bovee, Portland, Oregon, March 27, 2015

References

My price channel trading rules can be read here. My long-term share trading rules can be read here.  My volatility trading rules can be read here. The channel rules are based on the classic Turtle Trading rules, which can be read here.


Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

Alerts

Two social media feeds provide notification whenever something new is posted.

• On Twitter: Follow Tim Bovee: https://twitter.com/TimBovee
• On Facebook, Like Private Trader: https://www.facebook.com/PrivateTrader

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.Tss s ss'ss

Friday's Prospects

On Thursday, March 26:

Of 2,443 stocks and exchange-traded funds in my analytical universe, 71 broke beyond their 20-day price channels, seven to the upside and 64 to the downside.

Seven  symbols survived initial screening, two having broken out to the upside and five to the downside. One bear signal occurred on the first trading day after earnings were published and so comes under special rules.

No symbols appearing on my supplemental list of innovative companies gave bull signals and also met my earnings announcement rules.

There are no prospects for trades keyed to earnings under my Volatility Rules.

I shall do further analysis on Friday, March 27.

The next earnings season begins April 8 with the announcement by AA and runs six weeks. Under the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement, increasing numbers of symbols will be removed from my prospective trades list during initial screening. The rule doesn't apply to trades under my Volatility Rules.

First-round survivors: Regular rules

The lists are sorted in descending order by average yield. Regular rules means that confirmation will require trading above the 20-day price channel breakout level.

Bull TVPT FANG

Bear BLMN KANG AXE DISCA

Innovators (bull) (none)

First-round survivors: Special handling

The lists are sorted in descending order by average yield. Rules for a breakout immediately following an earnings announcement require that confirmation on the following trading day, Reset Day, require that the price be beyond the Reset-Day 20-day price channel. A breakout following a stock going ex-dividend must be confirmed on the fifth trading day after ex-dividend day.

Bull earns (none)

Bear earns WGO

Bull ex-div (none)

Bear ex-div (none)

Potential trades under my Volatility Rules, keyed to events

The dates are those of the events, all of them earns announcements. Events prior to the opening bell are marked "am", during the trading day "mid", and after the closing bell "pm". The lists are sorted in descending order by average volume.

Friday pm (none)

Monday am (none)

Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are greater than 50%, I next screen for the absence of an earnings announcement within the next 30 days.

For bear signals, I also screen to ensure the ability to do a trade because of the presence of options, without yet passing judgment on whether those options are liquid enough to support a trade.

I sort by the results in descending order by the average yield on signals in the direction of the breakout in preparation for the second round of analysis after the opening bell.

-- Tim Bovee, Portland, Oregon, March 26, 2015

References

My price channel trading rules can be read here. My long-term share trading rules can be read here.  My volatility trading rules can be read here. The channel rules are based on the classic Turtle Trading rules, which can be read here.


Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

Alerts

Two social media feeds provide notification whenever something new is posted.

• On Twitter: Follow Tim Bovee: https://twitter.com/TimBovee
• On Facebook, Like Private Trader: https://www.facebook.com/PrivateTrader

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.Tss s ss'ss

Thursday's Outcomes

I opened a position on GME coinciding with the earnings announcement. See "GME: Iron condor, volatility rules".

I closed an earnings play on LULU after the price moved above the profitable zone. See results at "LULU: Iron condor, volatility rules".

-- Tim Bovee, Portland, Oregon, March 26, 2015

References

My price channel trading rules can be read here. My long-term share trading rules can be read here.  My volatility trading rules can be read here. The channel rules are based on the classic Turtle Trading rules, which can be read here.


Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

Alerts

Two social media feeds provide notification whenever something new is posted.

• On Twitter: Follow Tim Bovee: https://twitter.com/TimBovee
• On Facebook, Like Private Trader: https://www.facebook.com/PrivateTrader

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.Tss s ss'ss

Thursday's Finalists

Of 13 symbols under consideration today, one -- KRFT -- produced a trading signal on news of a merger. The other 12 symbols have options grids that are insufficiently liquid to support a leveraged and hedged position. (See "Thursday's Prospects" for the early rounds of screening.)

One of the potential volatility plays timed to coincide with earnings had no place on the list. CCL lacks Weeklys among its options, and so any position would be further away from expiration than I prefer.

The other potential volatility play, GME, met my criteria, and I have opened a position. See the analysis, "GME: Iron condor, volatility rules".

-- Tim Bovee, Portland, Oregon, March 26, 2015

References

My price channel trading rules can be read here. My long-term share trading rules can be read here.  My volatility trading rules can be read here. The channel rules are based on the classic Turtle Trading rules, which can be read here.


Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

Alerts

Two social media feeds provide notification whenever something new is posted.

• On Twitter: Follow Tim Bovee: https://twitter.com/TimBovee
• On Facebook, Like Private Trader: https://www.facebook.com/PrivateTrader

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.Tss s ss'ss

GME: Iron condor, volatility rules

Update 4/5/2015: GME expired out of the money for maximum profit.

Shares declined by 3.3% over the 10-day lifespan of the position, or a 120% annual rate. The options position produced a 100.0% yield on debit, for a 3,650% annual rate.

---

The video game, consumer electronics and wireless services retailer GameStop Corp. (GME), headquartered in Grapevine, Texas, publishes earnings after the closing bell on Thursday, March 26,.

GME has Weeklys in its options inventory, and I shall use the APR1 series of options, which trades for the last time on April 7, seven days hence.

[GME in Wikipedia]

GME

The goal of my trade is to construct a direction-neutral position with a zone of profitability at expiration covering all of the one standard deviation range implied by volatility and options pricing, or the 30-day hourly chart support and resistance range, whichever is wider.

Ranges

Click on chart to enlarge.

GME at 10:05 New York time, 30 days hourly bars

Implied volatility stands at 48%, in the 96th percentile of the most recent rise. GME's volatility is 2.9 times the VIX, which measures the S&P 500's volatility.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	42.13	44.78	41.73
Lower	36.83	34.18	39.06
Gain/loss	6.7%	13.4%

Implied volatility 1 and 2 standard deviations; chart support and resistance
The Trade

The price has fallen sharply this morning, approaching resistance on the chart. I've set up the trade to the one standard deviation range, which is broader than the chart range.

Iron condor short the $42 calls and long the $43 calls,
short the $36.50 puts and long the $35.50 puts
sold for a credit and expiring April 8
Probability of expiring out-of-the-money

APR1	Strike	%
Upper	42	74.5
Lower	36.5	74.3

The risk/reward ratio stands at 3:2. The premium is a 38 cent credit  (20 cents for the calls and 18 cents for the puts), with shares selling for $39.50.

Decision for My Account

I've opened a position in GME as described above.

-- Tim Bovee, Portland, Oregon, March 26, 2015

References

My volatility trading rules can be read here. For a discussion of the rationale behind the rules, see my essay, "Rules for very short term trades".

The directional score is calculated as the sum of the following:

• Zacks rating --The Zacks ratings are translated as follows: 1=2, 2=1, 3=0, 4=-1 and 5=-2.
• Enthusiasm rating --: A single percentage derived from the number of analysts whose opinions are in one of five categories: Strong buy, buy, hold, sell and strong sell.
• Strong buy share -- The percentage of all analysts who rank the stock strong buy. If the share is 60% or greater, the score is 1; if 40% or less, then the score is -1; otherwise, the score is zero.
• Ethusiasm momentum -- The score is 1 if today’s enthusiasm rating is larger than the rating 30 days earlier; otherwise, the score is zero.
• 30-day direction -- The trend that best describes the 30-day chart: 1 for an uptrend, -1 for a downtrend and zero for a sideways trend.
• One-day direction -- The trend that best describes the one-day chart: 1 for an uptrend, -1 for a downtrend and zero for a sideways trend.

From time to time I use the number 68.2% in using applied volatility to calculate the expected trading range. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.


Alerts

Two social media feeds provide notification whenever something new is posted.

• On Twitter, Follow Tim Bovee: https://twitter.com/TimBovee
• On Facebook, Like Private Trader: https://www.facebook.com/PrivateTrader

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Thursday's Prospects

On Wednesday, March 25:

Of 2,443 stocks and exchange-traded funds in my analytical universe, 102 broke beyond their 20-day price channels, seven to the upside and 95 to the downside.

Fourteen symbols survived initial screening, two having broken out to the upside and 12 to the downside. One bear signal occurred on ex-dividend day and so comes under special rules.

No symbols appearing on my supplemental list of innovative companies gave bull signals and also met my earnings announcement rules.

There are two prospects for trades keyed to earnings under my Volatility Rules.

I shall do further analysis on Thursday, March 26.

The next earnings season begins April 8 with the announcement by AA and runs six weeks. Under the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement, increasing numbers of symbols will be removed from my prospective trades list during initial screening. The rule doesn't apply to trades under my Volatility Rules.

First-round survivors: Regular rules

The lists are sorted in descending order by average yield. Regular rules means that confirmation will require trading above the 20-day price channel breakout level.

Bull PBF KRFT

Bear TBPH CVLT RLYP POWI MXIM SGNT TRMB ECOL WEX LLTC PIN

Innovators (bull) (none)

First-round survivors: Special handling

The lists are sorted in descending order by average yield. Rules for a breakout immediately following an earnings announcement require that confirmation on the following trading day, Reset Day, require that the price be beyond the Reset-Day 20-day price channel. A breakout following a stock going ex-dividend must be confirmed on the fifth trading day after ex-dividend day.

Bull earns (none)

Bear earns (none)

Bull ex-div (none)

Bear ex-div VMI

Potential trades under my Volatility Rules, keyed to events

The dates are those of the events, all of them earns announcements. Events prior to the opening bell are marked "am", during the trading day "mid", and after the closing bell "pm". The lists are sorted in descending order by average volume.

Thursday pm GME

Friday am CCL

Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are greater than 50%, I next screen for the absence of an earnings announcement within the next 30 days.

For bear signals, I also screen to ensure the ability to do a trade because of the presence of options, without yet passing judgment on whether those options are liquid enough to support a trade.

I sort by the results in descending order by the average yield on signals in the direction of the breakout in preparation for the second round of analysis after the opening bell.

-- Tim Bovee, Portland, Oregon, March 25, 2015

References

My price channel trading rules can be read here. My long-term share trading rules can be read here.  My volatility trading rules can be read here. The channel rules are based on the classic Turtle Trading rules, which can be read here.


Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

Alerts

Two social media feeds provide notification whenever something new is posted.

• On Twitter: Follow Tim Bovee: https://twitter.com/TimBovee
• On Facebook, Like Private Trader: https://www.facebook.com/PrivateTrader

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.Tss s ss'ss

Wednesday's Outcomes

I opened two positions under my volatility rules, posting the following analyses:

• LULU: Iron condor, volatility rules
• TWTR: Iron condor, volatility rules

-- Tim Bovee, Portland, Oregon, March 25, 2015

References

My price channel trading rules can be read here. My long-term share trading rules can be read here.  My volatility trading rules can be read here. The channel rules are based on the classic Turtle Trading rules, which can be read here.


Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

Alerts

Two social media feeds provide notification whenever something new is posted.

• On Twitter: Follow Tim Bovee: https://twitter.com/TimBovee
• On Facebook, Like Private Trader: https://www.facebook.com/PrivateTrader

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.Tss s ss'ss

TWTR: Iron condor, volatility rules

Update 3/31/2015: As expiration neared, TWTR began to edge above the profitable zone of its iron condor and I closed the position for a small profit. The decision was rushed somewhat because Friday, April 3, is a market holiday.

The stock rose by +0.6% over the six-day lifespan of the position, or a +36% annual rate. The iron condor position produced a 19.2% yield on debit, for a +1,167% annual rate.

---

The social media service Twitter Inc. (TWTR), headquartered in San Francisco, California, broke above its 20-day price channel on Tuesday and confirmed the bull signal on Wednesday by continuing to trade above the channel boundary.

However, intra-day momentum was to the downside, suggesting that the signal is part of a whipsaw rather than an uptrend.

Under my price channel rules that reversal would be grounds for rejecting a trade in TWTR. I've been engaged in a project for several weeks looking at another approach, and this may be an opportunity to try that approach as a real trade, rather than as a paper trade.

I've written about the project and some preliminary insights in two posts: "Expanding the volatility strategy" and "Volatility: Defining high", as well as in several analysis with the logo "Paper Trade:" in the title.

Under my volatility rules as currently written, I open positions right before earnings are published. TWTR's earnings aren't out until April 29, so there is no event to trigger a sudden change in price or volatility.

TWTR has Weeklys among its options inventories, and I shall use the APR1 series of options, which trades for the last time on April 3,  eight days hence.

[TWTR in Wikipedia]

TWTR

The goal of my trade is to construct a direction-neutral position with a zone of profitability at expiration covering all of the one standard deviation range implied by volatility and options pricing, or the 30-day hourly chart support and resistance range, whichever is wider.

Ranges

Click on chart to enlarge.

TWTR at 11:30 a.m. New York time, 30 days hourly bars

Implied volatility stands at 42%. Calculated one way, it is at the top of the most recent rise. However, a slightly broader view, looking back to early February, it is in the 16th percentile of a recovery from a collapse that brought volatility down from 71% to present levels.

In more absolute terms, TWTR's implied volatility is three times the VIX, which measures volatility on the S&P 500, a fairly high level.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	54.15	57.29	51.87
Lower	47.89	44.75	48.40
Gain/loss	6.1%	12.3%

Implied volatility 1 and 2 standard deviations; chart support and resistance
The Trade

The chart range is significantly narrower than the one standard deviation range. Covering the 1SD range with $55 short calls and $47 short puts would require placing the short calls at a level with an 85% of expiring out of the money. At that level, the risk/reward ratio is too high for my liking.

Since the price is falling, I'll narrow things from the top and introduce some downward skewing, running at $52 for the calls and keeping the puts at $47. That produces a 3:1 risk/reward ratio, still too high.

The only way to make it work will be to reduce coverage to the chart, leaving portions at both sides of the 1SD range out of the zone of profitability:

Iron condor short the $51 calls and long the $53 calls,
short the $48 puts and long the $47 puts
sold for a credit and expiring April 8
Probability of expiring out-of-the-money

APR1	Strike	%
Upper	51	56.3
Lower	48	81.6

The risk/reward ratio stands at 1.7:1. The premium is 73 cents (61 cents on the calls and 12 cents on the puts).

Decision for My Account

I've opened a position in TWTR as described above.

-- Tim Bovee, Portland, Oregon, Feb.. 00, 2015

References

My volatility trading rules can be read here. For a discussion of the rationale behind the rules, see my essay, "Rules for very short term trades".

The directional score is calculated as the sum of the following:

• Zacks rating --The Zacks ratings are translated as follows: 1=2, 2=1, 3=0, 4=-1 and 5=-2.
• Enthusiasm rating --: A single percentage derived from the number of analysts whose opinions are in one of five categories: Strong buy, buy, hold, sell and strong sell.
• Strong buy share -- The percentage of all analysts who rank the stock strong buy. If the share is 60% or greater, the score is 1; if 40% or less, then the score is -1; otherwise, the score is zero.
• Ethusiasm momentum -- The score is 1 if today’s enthusiasm rating is larger than the rating 30 days earlier; otherwise, the score is zero.
• 30-day direction -- The trend that best describes the 30-day chart: 1 for an uptrend, -1 for a downtrend and zero for a sideways trend.
• One-day direction -- The trend that best describes the one-day chart: 1 for an uptrend, -1 for a downtrend and zero for a sideways trend.

From time to time I use the number 68.2% in using applied volatility to calculate the expected trading range. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.


Alerts

Two social media feeds provide notification whenever something new is posted.

• On Twitter, Follow Tim Bovee: https://twitter.com/TimBovee
• On Facebook, Like Private Trader: https://www.facebook.com/PrivateTrader

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Wednesday's Finalists

Of 10 symbols under consideration today, one failed confirmation: JACK. Eight of the remaining nine have options grids that are too illiquid to use in constructing leveraged and hedged positions.

That leaves TWTR as the sole survivor of the early rounds of screening, and I shall post an analysis prior to the closing bell.

See "Wednesday's Prospects" for a description of the early rounds of screening.

-- Tim Bovee, Portland, Oregon, March 24, 2015

References

My price channel trading rules can be read here. My long-term share trading rules can be read here.  My volatility trading rules can be read here. The channel rules are based on the classic Turtle Trading rules, which can be read here.


Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

Alerts

Two social media feeds provide notification whenever something new is posted.

• On Twitter: Follow Tim Bovee: https://twitter.com/TimBovee
• On Facebook, Like Private Trader: https://www.facebook.com/PrivateTrader

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.Tss s ss'ss

LULU: Iron condor, volatility rules

Update March 26, 2015: LULU rose sharply after earnings were announced, moving beyond the one standard deviation range but remaining within the chart range and the two standard deviation range.

Shares rose by 5.3% over the one-day lifespan of the position, or a 1,918% annual rate. The options spreads produced an -8.9% loss on debit, for a -3,244% annual rate.

---

The athletic apparel designer and retailer Lululemon Athletica Inc. (LULU), headquartered in Vancouver, British Columbia, publishes earnings on Thursday, March 26, prior to the opening bell.

LULU has Weeklys among its options inventories, and I shall trade the MAR4 series of options, which trades for the last time on March 27, two days hence.

[LULU in Wikipedia]

LULU

The goal of my trade is to construct a direction-neutral position with a zone of profitability at expiration covering all of the one standard deviation range implied by volatility and options pricing, or the 30-day hourly chart support and resistance range, whichever is wider.

Ranges

Click on chart to enlarge.

LULU at 10:40 a.m. New York time, 30 days hourly bars

Implied volatility stands at 47%, at the top of the most recent rise. Volatility is 3.4 times the VIX, which measures the implied volatility of the S&P 500.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	64.69	66.88	66.18
Lower	60.31	58.12	60.55
Gain/loss	3.5%	7.0%

Implied volatility 1 and 2 standard deviations; chart support and resistance
The Trade

LULU is on the decline today but hasn't broken below support. I have structured the trade so as to put all of the one standard deviation range within the zone of maximum profit at expiration, with the position skewed a bit to the downside.

A portion of the chart chart, 28 cents at the top, stands outside the zone of profitability.

Iron condor short the $65 calls and long the $67 calls,
short the $60 puts and long the $59 puts
sold for a credit and expiring March 28
Probability of expiring out-of-the-money

MAR4	Strike	%
Upper	65	66.9
Lower	60	63.1

The risk/reward ratio stands at at bit above 1:1. The premium is 90 cents (58 cents on the calls and 32 cents on the puts).

Decision for My Account

I've opened a position on LULU as described above.

-- Tim Bovee, Portland, Oregon, March 25, 2015

References

My volatility trading rules can be read here. For a discussion of the rationale behind the rules, see my essay, "Rules for very short term trades".

The directional score is calculated as the sum of the following:

• Zacks rating --The Zacks ratings are translated as follows: 1=2, 2=1, 3=0, 4=-1 and 5=-2.
• Enthusiasm rating --: A single percentage derived from the number of analysts whose opinions are in one of five categories: Strong buy, buy, hold, sell and strong sell.
• Strong buy share -- The percentage of all analysts who rank the stock strong buy. If the share is 60% or greater, the score is 1; if 40% or less, then the score is -1; otherwise, the score is zero.
• Ethusiasm momentum -- The score is 1 if today’s enthusiasm rating is larger than the rating 30 days earlier; otherwise, the score is zero.
• 30-day direction -- The trend that best describes the 30-day chart: 1 for an uptrend, -1 for a downtrend and zero for a sideways trend.
• One-day direction -- The trend that best describes the one-day chart: 1 for an uptrend, -1 for a downtrend and zero for a sideways trend.

From time to time I use the number 68.2% in using applied volatility to calculate the expected trading range. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.


Alerts

Two social media feeds provide notification whenever something new is posted.

• On Twitter, Follow Tim Bovee: https://twitter.com/TimBovee
• On Facebook, Like Private Trader: https://www.facebook.com/PrivateTrader

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Wednesday's Prospects

On Tuesday, March 24:

Of 2,443 stocks and exchange-traded funds in my analytical universe, 42 broke beyond their 20-day price channels, 24 to the upside and 18 to the downside.

Ten symbols survived initial screening, nine having broken out to the upside and one to the downside.

One symbol appearing on my supplemental list of innovative companies gave a bull signal and also met my earnings announcement rules.

There is one prospect for a trade keyed to earnings under my Volatility Rules.

I shall do further analysis on Wednesday, March 25.

The next earnings season begins April 8 with the announcement by AA and runs six weeks. Under the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement, increasing numbers of symbols will be removed from my prospective trades list during initial screening. The rule doesn't apply to trades under my Volatility Rules.

First-round survivors: Regular rules

The lists are sorted in descending order by average yield. Regular rules means that confirmation will require trading above the 20-day price channel breakout level.

Bull OVAS ABMD JACK AHS TWTR IMOS BCO EWH MUB

Bear FPRX

Innovators (bull) TWTR

First-round survivors: Special handling

The lists are sorted in descending order by average yield. Rules for a breakout immediately following an earnings announcement require that confirmation on the following trading day, Reset Day, require that the price be beyond the Reset-Day 20-day price channel. A breakout following a stock going ex-dividend must be confirmed on the fifth trading day after ex-dividend day.

Bull earns (none)

Bear earns (none)

Bull ex-div (none)

Bear ex-div (none)

Potential trades under my Volatility Rules, keyed to events

The dates are those of the events, all of them earns announcements. Events prior to the opening bell are marked "am", during the trading day "mid", and after the closing bell "pm". The lists are sorted in descending order by average volume.

Wednesday pm (none)

Thursday am LULU

Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are greater than 50%, I next screen for the absence of an earnings announcement within the next 30 days.

For bear signals, I also screen to ensure the ability to do a trade because of the presence of options, without yet passing judgment on whether those options are liquid enough to support a trade.

I sort by the results in descending order by the average yield on signals in the direction of the breakout in preparation for the second round of analysis after the opening bell.

-- Tim Bovee, Portland, Oregon, March 24, 2015

References

My price channel trading rules can be read here. My long-term share trading rules can be read here.  My volatility trading rules can be read here. The channel rules are based on the classic Turtle Trading rules, which can be read here.


Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

Alerts

Two social media feeds provide notification whenever something new is posted.

• On Twitter: Follow Tim Bovee: https://twitter.com/TimBovee
• On Facebook, Like Private Trader: https://www.facebook.com/PrivateTrader

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.Tss s ss'ss

Paper Trade: GM

Update 4/4/2015: My paper trade on GM was slightly in the money at expiration and so was assigned.

The stock declined by 4.3% over the 12-day lifespan of the paper position, or a -132% annual rate. The options upon expiration triggered purchase of shares. In my hypothetical scenario, I immediately turn around and sell them, although practically speaking that won't be possible until the following Monday.

The options and assigned shares produced a -0.5% loss on debit, for a -15% annual rate.

The last two trading days before expiration, the stock moved below the range of profitability inherent in the structure of my iron condor. It was quite a sudden movement, and it is unlikely that I would have been able to exit for a profit, even if it had been an actively managed real trade, with money at risk, rather than a paper trade.

---

This analysis for a paper trade, with no money at risk, continues my study into how to apply my volatility rules to a broader range of market situations.

See "Testing: Expanding the volatility strategy" for a discussion of the problem.

At this point I'm looking at non-trending symbols with no known major events in the near future that have implied volatility at a multiple of the S&P 500's. See "Volatility: Defining high" for a discussion of ways to assess the level of implied volatility.

Today I went to my list of liquid symbols having implied volatility around double the VIX. The later is implied volatility on the S&P 500. I framed the chart with Bollinger bands to search out non-trending symbols. I looked for bands that are generally trending sideways and not narrowing, with the current pride standing around the middle of the range defined by the bands.

This analysis looks at GM, which meets those criteria.

GM has Weeklys among its options inventories, and I shall trade the APR1 series of options, which trades for the last time on April 3, nine days hence.

One difficulty in choosing potential trades using this strategy is that earnings season begins April 8, so most large-cap companies are coming within the month when brokerage analysts pontificate and major traders adjust their positions in anticipation of the financial results and guidance, increasing the chance of sudden movements.

GM - paper trade

The goal of my trade is to construct a direction-neutral position with a zone of profitability at expiration covering all of the one standard deviation range implied by volatility and options pricing, or the 30-day hourly chart support and resistance range, whichever is wider.

Ranges

Implied volatility stands at 22%, at 2.2 times the VIX, which measures the volatility of the S&P 500. GM's volatility stands in the 5th percentile of the most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	39.38	40.69	38.99
Lower	36.76	35.45	36.73
Gain/loss	2.0%	4.0%

Implied volatility 1 and 2 standard deviations; chart support and resistance
The Trade

I attempted to build a position out of the MAR4 series, which trades for the last time on March 17, three days hence. However, I was unable to cover the one standard deviation range or come close to the chart range with sufficient premium to get a decent risk/reward ratio.

So I turned to the APR1 series.

The most recent movement on the chart is to the downside so I shall skew my position in that direction.

Covering the entirety of the one standard deviation range produced a 4:1 risk/reward ratio, larger than I like. The most recent movement on the chart is to the downside so to improve the ratio, I  skewed my position in that direction, trimming the zone of profitability from the top.

The resulting proposed position leaves 56 cents of the top of the one standard deviation range outside of the profitable zone, and 17 cents of the chart range.

Iron condor short the $38.50 calls and long the $39.50 calls,
short the $37 puts and long the $36 puts
sold for a credit and expiring April 4
Probability of expiring out-of-the-money

APR1	Strike	%
Upper	38.5	61.2
Lower	37	79.7

The risk/reward ratio stands at 2:1. The premium is 32 cents (25 cents net on the calls and 7 cents ont the puts) with shares going for $38.15.

Decision for My Account

This is a paper trade. No money is at risk. I'll add it to my inventory of paper trades. However, the narrowness of the range is a concern. I would be very nervous about this trade if I had money on the table.

-- Tim Bovee, Portland, Oregon, March 24, 2015

References

My volatility trading rules can be read here. For a discussion of the rationale behind the rules, see my essay, "Rules for very short term trades".

The directional score is calculated as the sum of the following:

• Zacks rating --The Zacks ratings are translated as follows: 1=2, 2=1, 3=0, 4=-1 and 5=-2.
• Enthusiasm rating --: A single percentage derived from the number of analysts whose opinions are in one of five categories: Strong buy, buy, hold, sell and strong sell.
• Strong buy share -- The percentage of all analysts who rank the stock strong buy. If the share is 60% or greater, the score is 1; if 40% or less, then the score is -1; otherwise, the score is zero.
• Ethusiasm momentum -- The score is 1 if today’s enthusiasm rating is larger than the rating 30 days earlier; otherwise, the score is zero.
• 30-day direction -- The trend that best describes the 30-day chart: 1 for an uptrend, -1 for a downtrend and zero for a sideways trend.
• One-day direction -- The trend that best describes the one-day chart: 1 for an uptrend, -1 for a downtrend and zero for a sideways trend.

From time to time I use the number 68.2% in using applied volatility to calculate the expected trading range. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.


Alerts

Two social media feeds provide notification whenever something new is posted.

• On Twitter, Follow Tim Bovee: https://twitter.com/TimBovee
• On Facebook, Like Private Trader: https://www.facebook.com/PrivateTrader

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.